Top 21 startup mistakes to avoid: #8: Entering partnerships without clear documentation

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“One of the biggest mistakes a business owner/entrepreneur can make when starting a business is the failure to implement contracts. No matter how good relationships may be, they can come to a screeching halt when systems and agreements are not put in place.” ~ Michelle Colon-Johnson, Founder, 2 Dream Productions

Why business partnerships fail

It is sad to say that most business partnerships start well but do not end well. These failures are even more pronounced in our part of the world, Africa, where most people are very selfish and individualistic. Often, at the root of these failures is a lack of documentation on those partnerships.

Obviously, people do not enter business partnerships to fail. They do so to succeed. However, there are certain factors which lead to the failure of these partnerships. For example, some startups do not adequately define their vision and reason for existence beyond simply being a vehicle to make money.

Consequently, people often join partnerships for financial reasons but leave because of values, career, or life-goal misalignment. The essence of the partnership seems to be focused on making money rather than solving a problem for people.

Other reasons for partnership failures include: Lack of transparency, no shared vision, no clearly determined roles, failure to stay in one’s lane, business outgrows the founders, disparity in contribution when the children of the founders refuse to work in the business, when one partner has bad baggage.

Documentation matters

Why is documentation an essential component of a business partnership agreement? Documentation gives you and your business partners a clear understanding of the rules and arrangements applying to your business relationship. Unless there is an agreement in place, all partners are equal and must share the business’ profits and cover losses, equally. … It lets you focus on the actual business of your business.

Most startups avoid drafting partnership agreements in business. In the beginning, it looks like it does not matter until issues begin to crop up. This is a mistake you must avoid if you seek to achieve great success in business.

Do not partner with the wrong investors

Another important group of partners every startup is likely to engage are investors. In as much as these people are needed to take the business to the next level, signing up the wrong investors can spell doom for the business.

Krish Subramanian, Co-Founder and Chief Executive Officer-Chargebee advises: “An important piece of advice that entrepreneurs should know before starting a business is that their investors are more than just financial backers. A company’s first set of investors will make or break it.

These individuals place their confidence in the business’s potential without having a proof of concept presented to them. Once businesses have undergone their seed funding, then they’ll interact with investors who look at the business’s growth and sustainability”.

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